August 17, 2006

 

Crude Oil has gapped down today and from a purely technical standpoint could go the way of what we have lately seen in MANY commodity bull markets when they either top out or enter corrections...Just to name a handfull...During the past nine months we have seen Gold drop $175 (24%) in a month, Copper drop $1.00 (25%) in a month, Sugar drop 5 cents (30%) in six weeks, Corn drop 50 cents (17%) in a month, and Natural Gas drop $8.00 (50+%) in two months...I believe this is absolutely a function of the billions of dollars of fund money now in the futures markets and believe the Crude Oil market is certainly no exception.

 

For whatever it is worth, excepting the past few years, there has been a strong inverse correlation between Crude Oil and Bonds for as long as I have been in this business...And the strange thing about the past few years is how firm the Bond market has remained while Crude was skyrocketing...Three years ago, if you'd known Crude was going to $80.00, you would have expected Treasury Bonds to have experienced a massive collapse...As they have not, I think this is indicative of the tremendous underlying strength in the Bond market....I have included below one example of what Bonds did as Crude was falling back in 1986. I do not mean to imply either of these markets will move as much as they did in 1986 but I will say I AM very bullish the Bond market, regardless of whether Crude sells off or not...If Crude does drop what I think could be an "easy" $10-$15, it may just be icing on the cake for the Treasury market. 

 

 

 
            Crude Oil vs. Bonds (1986)

 

 

Here is the current December Bond contract...

 

 

Bill Rhyne

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